Fund managers face tough decisions on cost cutting

By Claire Milhench

LONDON (Reuters) - Fund management houses worldwide may need to consolidate their funds and axe some of their highly paid managers in their quest to cut costs if markets do not improve, jeopardising new business and future performance.

The worldwide plunge in asset prices has hit fund management firms hard, as much of their income is geared to the value and performance of their investments.

Greenwich Associates data shows that U.S. institutional investment managers typically experienced a 31 percent drop in portfolio asset values in 2008.

To date firms have been reluctant to cull money managers who attract inflows, generating the management and performance fees that drive the business, and losses already announced have focused on support staff.

But industry insiders say more radical cuts are needed.

"A lot of them have taken a knife to it already, but they need to go further," said Pars Purewal, UK investment management leader at PricewaterhouseCoopers.

" 25 percent is a figure that several people have said to me. That is huge," he said.

He cited one unnamed leading fund firm which has so far made only two thirds of the necessary cost cuts.